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Introduction
This eBook focuses on ONE thing only –
TRAPPED TRADERS!
You may have an idea of what we are
referring to with this term – and you’re
probably thinking along the right lines. But
even if you’re not, fear not, as we are going to
start right at the very beginning.
Now, what we refer to as ‘Trapped Traders’ is
not a price-pattern, strategy, method or
anything like that. We consider Trapped
Traders to be a way of THINKING; a way to
view the markets.
In this eBook we will be seeing many
common, and some not so common, price-
patterns that occur in the markets; ALL of
these will be viewed from our perspective of
Trapped Traders.
So what exactly is a Trapped Trader?
A Trapped Trader is a trader who gets into a
position only to see it go against him fairly
quickly. We KNOW that this trader will become
more and more concerned as his position goes
against him until he is forced to liquidate his
position for a loss.
Now, there are TWO critical points here:
#1 – Our main task is to find where this is
going to occur – where a trader is likely to get
trapped
#2 – We are looking for as many traders as
possible to get into this position; where they
are FORCED to exit as the market goes
against them.
Point #1 is what the rest of this eBook is
about – we will be providing example after
example of different ways traders get trapped,

HOW they become trapped and what unfolds
as they are forced to exit losing positions.
We will expand upon point #2 now for those
who may be unfamiliar with what happens
when many traders are forced to exit
positions.
Let’s take the scenario where a market has
just rallied.
A rally is the result of more buyers than
sellers in the market. As fewer traders are
willing to sell, and more traders are willing to
buy, the price increases as traders start
offering to pay higher and higher prices.
Now, the market could be rallying as most of
the traders are entering a trade – buying, with
the hope of selling later at an even higher
price… or… the market could be rallying as
most of the traders are already short, think
the market is going to continue higher, and
must BUY to cover their Short positions before
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their losses potentially become larger than
they already are.
The market rally will generally be a
combination of these two scenarios playing
out.
Although it is implied, the exact same scenario
we’ve described is applicable to a falling
market – where traders are caught long and
must SELL to cover increasing losses.
Now, let’s get to the “good stuff” and start
learning how to figure-out where the majority
of traders are going to be positioned on the
“wrong” side of the market and are forced to
“pay-up” and trade their way out of it –
fuelling a move which we will ultimately be a
part of – in the “right” direction.
Many of the examples we present to you carry
a great deal of overlap – by this we mean that
we will be getting you to observe one scenario
on a chart, but with your own knowledge
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(particularly if you have read the REAL Onwards.

Traders Course), you will see other scenarios
taking place at the same time.

For example, while we may be referring to a

simple break-out pattern to explain
something, you will see this break-out pattern
as traders anticipating the break of a
Psychological Number.

This is partly intentional and partly inevitable

for two reasons: firstly, we wanted to focus
your attention on ONE pattern that was
occurring so as to keep your attention on what
effect Trapped Traders were having; and
secondly, it’s NOT a coincidence that you see
ONE pattern that could be interpreted as
VARIOUS patterns.

If you’ve already read the REAL Traders

Course then you will see some familiar
concepts here – but this time from the
mindset of looking for Trapped Traders!
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Observations: Psychological Numbers – in
this example it is the 1145.00 and 1140.00
level.
A1 – Traders jump in trying to short the
market as price breaks previous low hoping
for a break-down of the 1140.00 level. All
selling is fully absorbed by traders looking to
fade the 1140.00 level.
B1 – The traders who shorted into the
1140.00 level are now in offside positions and
are forced to liquidate (by buying back what
they sold) as price continues to rise.
A2 – Similar scenario to A1: traders jumping
in, hoping for a momentum-move down, as
price breaks previous low and psychological
number. The market falls a little but all selling
is again absorbed and the move rapidly loses
momentum.
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B2 – Again, similar to B1, the traders who
shorted into 1140.00 (and previous low) and
past it are now starting to feel the pain of
their position going against them – buying the
market to cover their positions – causing a
rally up to the 1145.00 psychological number.
A3 – There are a couple of “bounces” off the
1145.00 level before it breaks and the market
moves higher. There is no momentum follow-
through as the buying is absorbed by sellers…
B3 – …the market falls back again and the
traders who hoped for a move higher are now
starting to liquidate by selling as the market
continues to fall – fuelling the move lower.
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Observations: Psychological Numbers – in

this example it is the 1135.00 level; also, the
Absorption concept from the REAL Trading
Course.

A – Market takes-out recent low and falls

steadily towards the 1135.00 level – traders
selling are hoping for a continued move
down…

B - …but, we can see in the boxed region that

all selling is totally absorbed [over a 10-
minute period] at the 1135.00 level.

C – The traders who sold into the cluster of

buy-limit-orders sitting around the 1135.00
level are now starting to see the market go
against them. As expected, they start to feel
the pain of the losing position and start to buy
themselves out of their situations – taking a
loss and moving the market higher as they do.
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Observations: Support & Resistance.

A – (Nothing to observe here until B is

formed).

B – The market finds resistance at a level that

was previously support (A) – now there is
potential for other traders to start looking at
this level for being a potential trade area:
approaching it from below traders would be
looking to short it; approaching it from above
traders would be looking to long it.

C – We can observe that there were attempts

to short the market here as price approached
the previous S/R level. There was a little
reaction as price stalled…

D - …before continuing higher. The

momentum-move higher is fuelled by [short]
trapped traders liquidating and buyers looking
for a continuation – which they get.
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Observations: Support & Resistance.

A – Traders are selling at the 1162.50 level
for over 30-minutes; we can see from the long
“shadows” on the bars (or, candles) of the
chart that the sellers keep coming in.
B – The market falls, but not very far, before
we see buyers coming in at B. The market
then rallies a little…
E - …and sure enough, panic ensues, and a
momentum move is triggered by the traders
who sold at A getting forced out and new
buyers jumping in long as price makes a new
high [note: it is also a new high for the day
since session Open].

C – …before coming back down to match the

low made at B. The traders who shorted at A
are hoping for a momentum-move down.
However, the price drifts up as there is a lack
of sellers to take the market lower.

D – Here, at point D, is “crunch-time” for the

traders who sold at A; if the market does not
turn downwards here they are going to start
to panic as their positions start to going into
the red…
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Observations: Support & Resistance.

A – Resistance found at A as price battles to
get any higher and falls off…
B – …until some buyers come in at B. Price
then ranges…
C - …before another attempt is made at going
higher at C. This fails and buyers come in
again at D.1. Price rallies to D.2 before falling
back to D.3 and then rallying to D.4.
It can be observed here that price is now
making higher highs and higher lows as it
approaches the previous resistance level at A.
…this is our heads-up! All the traders who
have shorted at A, C, D.2 and D.4 could
potentially find themselves on the wrong side
of the market…
E - …and sure enough, price explodes above
what has been a resistance area…
F - …buyers storm in to buy the breakout, a
cluster of stoploss-orders are most likely
triggered and, of course, the trapped traders
[who sold below the resistance area] are
panicking to get out of their shorts (…in more
ways than one!).

Reading further into this tells us that the

higher lows are caused by buyers willing to
pay a higher price than before each time price
comes back down. The higher highs tell us
that each time price rallies there are fewer
sellers there waiting to sell into the rally…
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Observations: Dynamic Support &
Resistance.
A – (Nothing to observe here until B is
formed).
B – A higher low is formed (A being the lower
low here).
C – A second higher low is formed.
Now, this is where we will start to observe
traders looking to go long as price comes back
down to make a third higher low.
D – Sure enough, price comes down, buyers
come in, and price rallies up again – a third
higher low is made.
Remember, we are on the look-out for traders
getting trapped in positions that go against
them.
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E – Price comes down again to make a
potential fourth higher low. There is a little
“bounce” but the trendline breaks-down and
gives us the heads-up!
The chances are most of the traders will have
their stoplosses (either actually placed in the
market – or at least in their heads) below the
low of A – which at this point is the low of the
day.
1 – Although the previous higher lows have
broken-down a new higher low is formed with
respect to A.
2 – Again, a second higher low is made, this
time at 2.
Now, it’s RED ALERT!
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3 – We have traders who went long at A, B,

C, D and E… and even more traders who are
long from 1 and 2 now either at break-even
or in a losing position. The low made at A
gives-way…

4 - …and price drops like a rock: the longs

panic and fall over themselves trying to get
out; and new sellers come in looking for a
momentum-move down – which they get!
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Observations: Dynamic Support &
Resistance and Psychological Number.
A – Price breaks the 1140.00 level but fails to
follow-through on momentum…
B – …before dropping down to B. Buyers come
in here and price starts another rally.
C – As price heads toward the high made at A
traders come in and sell it before it is reached.
D – The market drops rapidly until buyers
come in at D before price reaches the low
made at B.
Now, after the high and low made at A and B
respectively, a lower high (C) and a higher low
(D) are made.
Now we have a battle.
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50 percent of the traders think the market is
going up… and the other 50 percent think it is
going down. One group of traders will be
correct and the other group will be wrong – or
as we know them, TRAPPED!
E – The market makes a minor lower high and
then very minor higher low before…
F - …exploding out above the levels made at
A, C and E. Again, the huge momentum-move
is fuelled by trapped traders getting out and
new buyers jumping in.
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Observations: Pressure-Play and

Psychological Number.

A – Sellers come in prior to price reaching the

1090.00 level.

B – Sellers come in again – but this time at a

higher level.

C – Yet more sellers, again at a higher level.

We are seeing that the sellers are having less

and less effect each time price rallies. We
have now observed 3 lots of selling – if price
continues up, there should be a decent
number of traders on the “wrong” side of the
market.

D – Sure enough, price battles with the

1090.00 level for over 30-minutes…

E - …before blasting through it as sellers at A,

B, C and D are forced to liquidate.
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Observations: Pressure-Play and

Psychological Number.

This example is almost identical to the

previous one. These patterns occur over and
over.

A – Sellers come in prior to price reaching the

1135.00 level.

B – Sellers come in again.

C – Yet more sellers – this time at a higher

level.

D – A fourth lot of sellers – this time exactly

on the 1135.00 level.

E – The 1135.00 level finally gives-way as the

[trapped] sellers at A, B, C and D panic and
are forced out.
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Observations: Support & Resistance and

Initial Range.

A – Traders sell at the 1137.50 level; this is also a new high for the day.
level is the low of the previous trading days’
Initial Range.

B – Buyers come in at B.

C – Sellers come in again at the 1137.50

level.

D – Buyers come in again where they came in

previously at B.

We now have two lots of traders thinking the

market is going up; and two lots of traders
thinking the market is going down.

Either the long or shorts will win.

E – 1137.50 level breaks and the traders who

sold at A and C are forced out. This break-out
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Observations: Fakey.

A – Price breaks down through the recent low.

Traders short hoping for a further move down
– but buyers absorb all the selling.

B – The traders who shorted at A are

squeezed out at the market goes against
them.
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Observations: Absorption and Psychological

Number.

A – ALL buying into the 1145.00 level is

absorbed.

B – Any attempt to go higher has been

absorbed by sellers and so those traders who
buy into the 1145.00 level now start to see
the market go against them. They are trapped
and subsequently forced out.
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Observations: Dynamic Support &

Resistance and Psychological Number.

A – (Nothing to observe here until B is traders who will be wrong and a group of
formed). traders who will be right.

B – A higher low is made.
C – Sellers come in at the 1145.00 level.
D – The low at D is higher than the low at A
and matches the low at B. Signs of buying
strength in the market.
The market drifts up after making the low at
F.
G – The sellers at C and E feel pain and start
to liquidate – causing the market to move
higher.

E – Price rallies but sellers take it down before

it reaches the high made at C.

F – Price only drops a little before traders

start buying again.

We now have 3 higher [or equal] lows (B, D

and F) and a lower high (E). The situation is
now in place where we have a group of
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Observations: Dynamic Support &

Resistance and Psychological Number.

A – Point A marks the second higher high. A being forced out of their longs as well.
rough trendline can be drawn to anticipate
another [potential] higher high that traders
may start buying at.

B – Sure enough, traders buy again and a

third higher low is made at B.

C – Price rallies strongly, breaks the 1165.00

level, but fails to move higher.

D – The market makes another attempt but

ultimately fails. The traders who bought at C
and D are now starting to question their long
positions – another higher low is there only
hope…

E - …this doesn’t happen, the trendline

breaks, the market drops hard and fast –
further fuelled by those who bought at B

Conclusion
This eBook was about practical, real-life
examples.
In each example, the observations made were
specific to a particular concept we wanted to
highlight. However, within every example
there are numerous observations that could
have been made.
Trading at a professional level is not about
having a database of strategies to use on an
array of different markets. It is about
understanding who is operating in the market
and how they are operating.
Once you learn this - every market becomes
the same to you.
You will see the same patterns in almost every
market. Every market consists of traders; and
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traders, whichever market they operate in, do
the same things over and over and over.
Learning to identify the same patterns over
and over is what will push your trading to new
levels.
However, understanding how and why each of
the patterns form is what it takes reach
superstar trader status.
We hope this ebook has gone some way to
help you understand the how and why of the
markets and we wish you the very best in
your trading endeavours.
Keep it REAL.
The REAL Market Traders
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Feedback

If you have any questions, comments or

feedback please contact us via the ‘Contact’
page on our website:

www.REALMarketTrading.com

… Or email us directly at:

support@realmarkettrading.com
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Disclaimer

This communication has been prepared solely

for information and data purposes and is not
intended as an Invitation or Inducement with
respect to the purchase or sale of any financial
instrument. This communication should not be
regarded as a substitute for the exercise by
the recipient of its own judgement. Any
reliance placed on the communication is at the
reader’s risk. Information and opinions have
been obtained from sources believed to be
reliable but no representation is made to their
accuracy. © 2010 REAL Market Trading. No
copy can be taken without prior written
permission. Charts © Trading Technologies
International Inc. All rights reserved
worldwide.